OECD sees major slowdown in global economy

The Organization for Economic Cooperation and Development said yesterday that the global economy is slowing more than anticipated as Russia's war in Ukraine and global inflation forces major central banks to raise interest rates at the fastest pace in decades.

The Paris-based organizations still think the global economy will grow by 3.0% this year, but they are projecting a major slowdown next year, with growth declining to just 2.2%. It is a major change from the 2.8% rate predicted in June and marks a $2.8 trillion decline in global output.

In the U.S., growth is projected to drop to 1.5% this year and 0.5% in 2023. The euro zone is projected to grow just 1.25% this year, with risks of a deep decline in several countries during the winter and 0.3% in 2023, according to the OECD. The OECD sees slowdowns in Germany and Spain within the nations that use the euro.

The war in Ukraine has pushed the global cost of essential commodities like food and fertilizer to the highest level in a long time, exacerbating already high inflation. It has also pushed energy prices higher, further weakening household spending in Europe.

As it is often the case, the OECD warned that high prices, including soaring costs for food and energy, will hit low-income countries the hardest.

Lockdowns in China that are intended to stop the spread of COVID 19 have disrupted manufacturing and supply chain disruptions.

In most of the Group of 20 countries, inflation is expected to drop gradually over the next year as major central banks tighten monetary policy, stalling growth. The headline inflation will fall from 8.2% this year to 6.6% in 2023, well above the targets of 2%, according to the OECD.

Cormann said that these challenging economic situations will require bold, well-designed and well-coordinated policies.